Foreign Firms, Technological Capabilities and Economic Performance

Foreign Firms, Technological Capabilities and Economic Performance

Evidence from Africa, Asia and Latin America

Rajah Rasiah

This book employs novel techniques to compare technological capabilities and economic performance in seven countries at varying stages of industrial development: Brazil, Costa Rica, Indonesia, Kenya, Malaysia, South Africa and Uganda. The author uses a methodology drawn from the technology capability framework, but extensively adapts and simplifies it to extract common cross-industry parameters for statistical analysis. He employs the framework to compare the technological, local sourcing and performance dynamics of foreign and local firms in a variety of industries.

Chapter 1: Introduction

Rajah Rasiah

Subjects: business and management, international business, development studies, development economics, economics and finance, development economics, innovation and technology, innovation policy

Extract

Rajah Rasiah 1.1 INTRODUCTION Latecomer economies typically access technology through learning – via a combination of imports and domestic development. The cumulative dimension of technology offers firms the opportunity to learn from already developed technologies. While superior national innovation systems in developed economies support firms at the technology frontier so that the transnationalisation of economic activities by giant corporations is inter alia aimed at tapping knowledge appropriated globally,1 developing economies – especially those emerging at the bottom of the technology ladder – generally attract them only on the basis of large low-wage labour, natural resources and domestic and regional markets. Nevertheless, whatever the reasons for relocation, the participation of foreign firms offers host sites the potential for knowledge spillovers. Some developing economies seek knowledge from abroad through imports, training of personnel overseas, licensing and subcontract deals. Transnational corporations (TNCs) still play a major role involving this channel, albeit indirectly as imitation and arm’s-length transactions figure prominently. Countries such as Japan, South Korea and Taiwan generally absorbed foreign technology through imitation and licensing from TNCs. Others such as Singapore and Ireland have relied extensively on TNCs’ foreign direct investment (FDI) to stimulate learning and innovation. Clearly, both strategies – learning and innovating to compete, using TNCs both directly and indirectly – are embedded in national economic policy. Hence discussions relating to the role of FDI on technology cannot be detached from the conditions prevailing and economic policies pursued at host sites. The term foreign firm was preferred over TNCs2 and multinational corporations (MNCs) here owing...